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> I was trying to point out to a banker that the nominal return cannot exceed inflation in the long run

Someone should point out that this line of reasoning is just flat wrong for reasons obvious to any first year economics student.

Whilst it sounded cute, an actual explanation would have been great. Mind expanding?

Total wealth is not fixed over time. If you spend X resources making a solar panel and it produces X + Y resources over it's lifetime there is a net gain of resources even ignoring money.

At scale investment returns are bound by GDP growth and how much of those returns are spent.

It's not a zero-sum game, there are more assets now than when we all lived in mud huts or roamed the plains in search of food. Were there to be no real returns to investment we would all have just been trading around the same fixed amount of assets for the last 10,000 years, which is of course nonsensical.

His argument is that nominal returns adjusted for inflation in the long run average to zero. Which is saying that there is no such thing as a real return to investment. However that is incorrect, as investing in productive assets can increase the world's net wealth and productive capacity.

As one can observe by the vast increase in our collective productive capacity from the stone age through the present day.

Substitute inflation for wage inflation. It's not that there are no returns, but that the rate of return is completely decoupled from reality. Productivity growth is what (1-2%)? Real terms wage inflation is what (~0% since the 70s).

Productivity growth is just a part of the equation. You have population growth and several other factors.

He's actually correct if you're talking strictly about the monetary framework. That we are as a society collectively richer (i.e. we have more stuff) is indisputable - but if you get into how the stuff is priced, and what happens to those prices over time, as more stuff is produced, and the money supply grows at the same time, it gets decidedly murky as to what prices and value even mean.

His point however was not about stuff, it was about return on savings i.e. payments in money of money. That is indeed bounded.

"where I was trying to point out to a banker that the nominal return cannot exceed inflation in the long run. ".

Sorry, but i hope you realise now you're wrong and I hope the banker explained why.

It should read monetary supply inflation, not basket of goods inflation.

The greater point is how can ordinary expected returns exceed productivity growth, normal monetary supply inflation and indeed gdp growth.

> We have been engaged in collective madness over investment/savings returns. I remember conversations (probably 2007ish) where I was trying to point out to a banker that the nominal return cannot exceed inflation in the long run. How is it that pension funds can be predicated on a 6-8% return. Well it only works if we have a 1) a crash every so often wiping out everyones gains or 2) hyper inflation (or 3 some other people just giving money away).

We live in a world with increasing productivity which is the X factor you are looking for. For an amazing amount of time we have been able to make more stuff with less work which generates huge returns. That's not to say it is infinite, but it does allow pensions to get 6-8% returns without a crash or hyperinflation.

If you haven't already you should read Thomas Piketty' Capital in the Twenty-First Century.

>"the nominal return cannot exceed inflation in the long run"

Shouldn't that read "inflation + GDP growth rate" ? That's how long term investments in stocks are estimated.